I’ve been reading about the new foreign exchange program Pip Android and I commenced wondering if the amateur traders know what are those pips anyway. FX trading pips are a crucial part of forex trading that any trader must understand. They are the measure of movements in prices, and therefore of profit and loss. Brokers generally interpret pips into dollars and cents for you, or into the currency that your account is held in, if it’s not US dollars. When comparing 2 trades with different position sizes it’s the profit or loss in pips that tells you more than the profit in greenbacks.
PIP means percentage in point. It is employed as a measure of change in price. Spread is also measured in pips. The pip is the littlest part of the measured price of a quoted currency.
In practice, most currencies are quoted to four decimal places, e.g. 1.2315. In this situation one pip is 0.0001 units of the quote currency. So if that price changes to 1.2316, the price has increased by one pip.
The japanese yen is the sole one of the major currencies that’s low enough in value to be usually quoted to 2 decimal places. So when the yen is the quote currency, one pip is 0.01 yen.
Some brokers are now beginning to quote the other major currencies to 5 decimal places. Rationally this should mean that one pip would be 0.00001 currency units, but the potential there for bafflement is huge, if a pip would be worth 10 times as much with some brokers than with others. So it appears likely the pip will stay at 0.0001 units for most currencies.
Most traders record their profit and loss in Forex trading pips as well as in cash. This enables straightforward comparison of one trade with another so that you can appraise a system. It also suggests that traders can debate their leads to a forex forum without revealing the dimensions of their account or their profits in bucks and cents.
If a trader tells you that they made a hundred pips profit, you do not learn anything about their money situation. If they are trading a pair like EUR/USD where the buck is the quote currency, one hundred pips profit would be $1,000 on a standard lot of $100,000 but only $10 on a $1,000 micro lot. To grasp the size of one pip in dollars in this position multiply 0.0001 by the lot size.
To work out profit or loss from pips where the dollar is the quote currency, you only need to know that one pip is $0.0001 x lot size. If you have another currency as the quote currency, the pip is naturally in that currency, and you can multiply by the exchange rate to understand the pip value in greenbacks.
All this may appear rather baffling at first sight but anyone who starts trading will pretty soon understand what a pip means in practice. Forex trading pips are a useful tool for measuring and recording movements in prices in currency trading.
